Why Saudi Tech Companies Should Consider an Asset Light Business Model
Last Updated on November 9, 2023 by Ameer Hamza
An asset-light business model is not as complex as it sounds. It merely entails the transfer of capabilities to more suitable owners to enable a variable cost structure instead of fixed costs. Recently, businesses have found it easier to reduce the capital invested in assets by decentralizing it through the hands of third parties or online methods. This method has proven valuable and cost-effective for companies worldwide. Perhaps it would be best to consider its feasibility in the tech industry of Saudi Arabia, where it can help the companies retain capital otherwise expended on assets.
Importance of Asset Light Business Models
Asset-light business models come with a host of benefits. For one, companies get more for less as they require less capital to establish and build their venture. They will also have fewer expenses with the ability to generate increased revenue while retaining a large portion of equity.
Also, the core of the model is the transfer of risks appeal. The model thrives on passing risk from businesses to third-party vendors. As such, they are automatically protected from severe liability for any falling out or negligence. The model also works when the company needs to go through strategic scaling or changes in a new environment. There is no doubt that asset-light models will become a big part of the future sooner or later.
Why should Tech Companies in Saudi Arabia Consider an Asset Light Business Model
Technology has always been a decentralized industry, with private individuals and companies having as much stake as the government. By default, the industry also often does not require a considerable investment in physical products and assets because of the virtuality of the product and services of some companies. However, in some instances, the company may require large capital for research or hardware, which necessitates a lot of investment in asset capital. These instances are where an asset-light business model comes in to mitigate the capital burden on tech companies.
Adopting the asset-light business model by tech companies in Saudi Arabia has diverse prospects for these companies and the country itself. The model is ideal for companies actively seeking to establish their presence internationally. Its nature allows it to extend its frontiers to several locations simultaneously with minimal capital cost. Of course, the country where the company is established enjoys all the accompanying benefits and recognition needed for more foreign direct investment.
The model also helps get companies out of a bind by reducing costs, raising consistent revenue, and getting better returns on investment in their asset. More importantly, it helps to increase market share and aid the reaching out to the target market.
Before the Covid-19 pandemic, companies that ran on asset-light models were viewed as those with very little capital to keep up with the needs of the business. However, investors and companies alike are now very keen on going the way of an asset-light business model, which is unsurprising, seeing as the model has been effective where it is implemented so far.